Cleantech Venture Capital - Insider Report

Solar Grid Parity Calculation

noreply@blogger.com (Aaron Fyke) — Fri, 17 Jul 2009 05:23:00 +0000

I came across a post from a while back - April, 2008. In it the author describes the year at which residential rooftop solar reaches grid parity.

The post is brilliant in its simplicity. By taking NREL data, the average price of a solar module can be seen to be dropping at 6%/year. Extrapolating forward, while making the assumption that the installed cost will continue to be twice the module cost (which may not be true as improvements to module cost have seemed to be happening faster than installation improvements - but we can hope), as well as making a couple of other reasonable assumptions on interest rates and cost of electricity, he demonstrates through a pretty simple NPV analysis that by 2015, solar will have reached grid parity in Minnesota.

That's pretty striking, and he didn't provide what the solar resource was like in Minnesota (although, it might be pretty good - there is a latitude issue, but I bet that there aren't many clouds).

I like this analysis because it is so simple, and it's fairly easy to change any assumptions that you might disagree with and see what there effect is. This graph from Solarbuzz shows that module prices have started to work through the silicon shortage (it had to happen sometime!) and prices have resumed their downward trek. This might push out the grid parity time an additional five years - or, due to the billions of investment dollars that have gone into solar in the last few years (and given First Solar's announcement of <$1/W manufacturing cost) the price reduction curve could accelerate from 6%/yr to 10%/yr or beyond. At any rate, this is exciting as I believe that since electricity is a commodity, there will be a sharp tipping point once the economics work out, and this is all foreseeable in the next few years.

NOAA Climate Change Report (and DocStoc)

noreply@blogger.com (Aaron Fyke) — Sat, 20 Jun 2009 19:36:00 +0000

NOAA, in conjunction with the National Science and Technology Council have recently released their report Global Climate Change Impacts in the United States. This report is very detailed, with lots of useful up to date graphs and charts. It's extremely data-heavy, which I like. I've seen snippets of it floating around the blogosphere recently.

If you'd like to have a read, I've included the embedded link.

Global Climate Change Impacts in the United States -

The second half of this post talks about the link and the service I used, called DocStoc. There are several file sharing websites out there - most of them focus on Powerpoint hosting (I've used Slideshare in the past). However, what I discovered I like about Docstoc is that it's really built a fantastic library of documents, beyond just presentations. I've used it to find technical documents, marketing brochures, legal templates, etc. Google can be great for finding a link to a published work, but you won't necessarily be able to get at the actual document. Whereas DocStoc's inventory is far less - anything you do find you have full access to, which is sometimes all you need. Having full access to a smaller pool of material can usually be more helpful than having partial access to a larger pool, and what they've put together is really neat.

Secretary Chu Announces Nearly $50 Million to Accelerate Deployment of Geothermal Heat Pumps

noreply@blogger.com (Aaron Fyke) — Thu, 04 Jun 2009 23:12:00 +0000

CleanEdge reported today on the DOE's commitment of $50m to Geothermal Heat Pumps.

Geothermal heat pumps are nothing new. In fact, I recall hearing about them way back in my first thermodynamics class in engineering. The idea is that you pump heat from the outside when it is cold and pump heat to the outside when it is hot is simple. Given that, you want your outside temperature sink to be as hot as possible when it is cold out, and as cold as possible when it is hot out. The temperature of the ground, several feet below the surface makes this a far more attractive reservoir than just the ambient air.

So what's the problem? Well, a big issue is the fact that installing a geothermal heat pump is a custom job, involving digging up and installing an underground network of plumbing. For many homeowners, the cost of installing isn't worth the payback period. Well, what about the initial builder? Surely it is much cheaper to install when the house is first being built? Well, yes, but as everything in the green building space, if the developer can't charge more for the building because of an installation, then it's not worth putting in the installation, no matter how cheap it is. This is the classic developer/owner market failure that plagues any kind of efficient building (ie, the developer isn't the one paying the utility bill, and yet can't capture the long-term value of putting in efficient systems).

So, could this spur innovation to reduce up-front costs of these systems? Let's hope so!

CafePress - Sign of the Times

noreply@blogger.com (Aaron Fyke) — Mon, 01 Jun 2009 05:06:00 +0000

I've known about CafePress for years. I think it's a genius way of running a "user generated content" business. They handle all of the logistics, manufacturing, customer relations and finance. You provide the content. I think it's a model of how to leverage a core competency of manufacturing, and I'd love to see similar businesses in other areas.

To try it out, I took a quote from a great artist and photographer friend of mine, Rob Shaer, and turned it into a collection of stuff. The quote, which I thought was a brilliant summation of how much things have changed in the past three years is:

"Is it possible to have work-life balance without the work?"

Overall the process is pretty smooth, although it was several hours of work to come up with a design, do all the Photoshop fiddling, make two version (depending on landscape or portrait mode), and then create the right sizes for each of the scores of items offered.

I thought about taking silly things down (like the intimate underwear), but it was going to be more work to filter everything, and besides, maybe someone will want them.

Overall, I was impressed with the process and big thumbs up to the CafePress team for putting together a great site. I'll track the performance over the next few months, but if you are interested, or know of some soul run over by the train wreck of this economy who might be cheered up, be sure to purchase something and I'll let people know how it turned out.

WTF? The baddest green machine out there.

noreply@blogger.com (Aaron Fyke) — Thu, 21 May 2009 03:33:00 +0000

This weekend I came across the ultimate in mixed branding - the Hybrid Escalade. With a hybrid option to the standard Cadillac Escalade, it is now possible to eek out an astonishing 20 MPG out of this 8 passenger transport. With a base price of $74k (as opposed to the base of $63k for the regular Escalade) this might master from Detroit certainly targets the upper income range for car purchasers. From a fuel consumption point of view, the improvement, as I understand it, is somewhere from 14mpg to 20mpg - or about 6mpg. At 15,000 miles/year, this is 321 gallons/year savings. At $3/gallon, that's $963/year, which would probably not make this justify the price premium.

But the real question is: does the "Hybrid" badge do anything, from a marketing point of view? Most hybrids have a halo effect (and, if you can drive in the carpool lane, a time-saving benefit as well). With the MANY "Hybrid" badges plastered on this vehicle, clearly the hybridization matters, but reaction from many indicates that this vehicle is more one of amazement and scorn.

Too soon

noreply@blogger.com (Aaron Fyke) — Thu, 07 May 2009 22:47:00 +0000

Kyle Swanson, a co-worker of mine from AeroVironment, passed away recently. He was 43 years old.

Aside from the terrible shock of one so young being taken from us, Kyle in addition was one of the instrumental players in launching AeroVironment's unmanned aerial vehicle product line. I had the privilege of riding the tsunami that was the growth of this division when I first joined AV, and helped start up their production facility, their Logistics organization and their Training organization.

He was incredibly energetic and enthusiastic, and passionate about what he did. The greatest thing for a person to have done is to have done something that mattered, and to have made a difference in the world. Kyle has done this, and all those who remember him, and thousands who never met him have been, or will continue to be, affected by all that he has accomplished.

I was struck at how someone whose enthusiasm could even exceed my own, how someone so full of life could now no longer be with us. My thoughts are with those who remain, who struggle with their loss. May they find comfort in the knowledge that those of us fortunate enough to have known Kyle are all the better for it.

Fusion! Creeping back?

noreply@blogger.com (Aaron Fyke) — Tue, 05 May 2009 01:40:00 +0000

Watch CBS Videos Online
60 Minutes recently ran a very interesting story about Nuclear Fusion. While the science of the video is very thin (hey, they only had 12 minutes!) the clear story is that it is slowly becoming acceptable to work on nuclear fusion technologies.

Recently I spoke with the CEO of General Fusion, a Vancouver based company. The founders come from CREO, a company with impressive technical pedigree, and they are working on an interesting fusion concept, shown here.

Basically, as I understand it, they have a spherical container with many pneumatic rams. The rams all fire simultaneously, creating a spherical shockwave that implodes upon itself. At the center of the sphere, the wave collapses, creating astronomical pressures, and fusion.

Unlike many crackpot energy stories I hear involving perpetual motion machines, what intrigues me about nuclear fusion is that it actually works. It's just that the engineering is really, really hard. However, the difference between "really hard" and "impossible" is non-trivial.

So, I for one remain interested in this space. However, I don't know if it is going to be always decades away. I hope not, however, I'd welcome others' comments on viability and practicality.

X PRIZE Foundation

noreply@blogger.com (Aaron Fyke) — Tue, 28 Apr 2009 04:27:00 +0000

The X PRIZE Foundation is a fantastic organization. They launched the $10m Ansari X PRIZE, which was won in 2004. This prize rewarded the first private team to fly to 100km (twice in two weeks).

Now they are working on a prize for energy and the environment. I'm helping get this kicked off and it's a really interesting project. There are literally dozens of potential areas that might be appropriate for an X PRIZE. However, it has to be an area which $10m will move the needle, and so asking teams to compete for something there were going to do already is a waste of time.

If you have any thoughts as to what might be interesting for the X PRIZE Foundation to focus on for an energy prize, please drop me a line (at my aaronfyke email address at yahoo.com - my Turing test for spam bots). I'd love to get input! Also, providing input would not disqualify you from any future prize competition.

The momentum of a juggernaut

noreply@blogger.com (Aaron Fyke) — Thu, 12 Mar 2009 00:58:00 +0000

If you want to get an appreciation for just what a juggernaut the US driving public is, check out the following graph. I got it from Green Car Congress.

This graph goes back to 1983 and shows a steady, almost inexorable, rise from 1.6 trillion vehicle miles driven annually to peak at just over 3 trillion vehicle miles. There are slight periods where the graph goes horizontal for a few months (which seem to map to various recessions). However, the biggest actual drop EVER has happened at the start of 2008, when oil prices were pushing gasoline prices through the roof. This should allow economists to get some idea of the elasticity of gasoline. I'd assume it isn't much.

What I find striking is how much it is rising. I'd like to compare this to population. I'd also like to have a current version of this graph - one that includes the financial and job-market meltdown of late 2008. Gas prices have fallen, but when people aren't working, they aren't commuting. The reason I find this so arresting is that it took $4+/gallon prices to push drivership down to 2006 levels! I moved to Los Angeles in 2002 - what is the likelihood that this graph will drop to those levels?

Nifty New Site - Wordle

noreply@blogger.com (Aaron Fyke) — Fri, 06 Feb 2009 04:52:00 +0000

The above image was created with Wordle. You can give it any jumble, or text, or point it to a blog and let it mine its own words. It seems to have sampled heavily from my previous two posts, but I like the fact that it's so accessible.

I decided to try this out on the blog of Daniel Sieberg, CBS Science and Technology Correspondent, and good friend. He's currently covering TED, so there's no surprise that this was the result:

The readers respond!

noreply@blogger.com (Aaron Fyke) — Sat, 24 Jan 2009 03:39:00 +0000

Wow. One well placed post and my readership increases 6x. There has been a lot of interest in my Type I/Type II characterization, and some interesting comments.

Some of the things that I've seen from the discussions I've recently had relate to competition. Type II companies may have a lot more competition than a Type I company would, and this is seen in the case of scripped.com, and various social networking sites. However, the key to making a Type II company work is to find other means, other than technological, to lock in a barrier to entry. Since there is bound to be lots of competition, other means can still establish a single market leader.

For example, there was a time that Hotmail ruled the roost. While there was no barrier to switching, Hotmail's viral marketing established them as the dominant web-based email solution by far. Had Hotmail continued to provide good quality service (rather than getting suffocated by ads and spam, as what happened), they could have held that position for some time. Nevertheless, the position of a Type II company can be precarious. Hotmail lost to Yahoo and GMail, Friendster lost to Facebook, etc. It does appear, though, that a Type II company that has succeeded in being the market leader, only relinquishes the title when they stumble. Otherwise, the market is happy, and actually prefers, to reward a dominant leader. I can't say that eBay has yet to stumble, and barring Craigslist (which, I believe has some relation to eBay anyway), there isn't another trading/auction site that has similar reach.

At any rate, thank you all who contacted me. Interesting discussions.

Type I vs Type II companies

noreply@blogger.com (Aaron Fyke) — Mon, 19 Jan 2009 22:03:00 +0000

I've spent a reasonable amount of time thinking, over the Christmas break, of what types of startup companies succeed, what types raise funding, what types are capital intensive. It's also been interesting to compare cleantech companies to IT companies, because in some ways there are similarities, and in other ways, the two sectors fall in distinct camps.

So, without further ado, here are my two categores:

Type I Companies - Value based on a technological breakthrough (Technology Push)

ie: "cure for cancer" type companies.

Examples (based on my observations):
NanoH2O
Various Biofuels companies
Sunpower (and other solar companies)
Ballard Power Systems
Viagra
X1
Google

I call these companies "cure for cancer" companies, because the main importance is the technology, not the marketing. If someone shows up with a cure for cancer, investors aren't necessarily going to say, "wait a minute...what's your marketing strategy?". The market is huge and obvious and the marketing plan isn't as important. I have to put a small caveat here - because X1 struggled due to marketing reasons, and Google only became a money machine once they figured out how to monatize search. But the main point is that the technology drives the value and thus the company.

Type II Companies - Value based on a marketing breakthrough (Market Pull)

Examples (based on my observations):
Facebook
YouTube
Dell
Scripped.com
Most internet companies

Here, the value of the company is not based on discovering a technological breakthrough, but rather it is from developing a clever business plan. Dell didn't really do much more than assemble commodity computer parts, but it does so with very low supply chain costs. Facebook is "nothing more" than a large database with various pointers, but it's genius has been how it has executed brilliant viral growth and user lock-in. YouTube has some technology in its video compression through Flash, but mostly it succeeded through opening up its comments, allowing videos to be posted on blogs, and basically out-marketing, virally, any other video site.

These companies are started by looking at the market and saying "what is the market need here", and then building the software. I recently came across Scripped.com. It's a great idea - take Screenwriting software (which has existed for ages), put in on the web with a SAAS model (a la Google Docs), charge nothing for it, and try to monetize the community. This idea didn't come about because of a technological breakthrough - heck Google Docs and Desktop screenwriting software proved it could be done. This idea came out by seeing a need and building a business to meet it.

So, which is better? Well, back in my days in the auto industry at Visteon, they would have said Type II is better. Visteon was forever inventing technology looking for a home, and was wanting to assess the market need and create products to meet it. True enough...however, technology push companies tend to be easier to get funding for (walk into any VC with a technology proven to produced zero-carbon energy at a lower cost than coal and you will almost certainly get a check). A type II company can be harder to sell the vision for (can you imagine the initial pitches for eBay? - "So...people are going to be selling used Smurf dolls and old socks online and you think that's a business?") Type II companies can be easier, technologically, to start, but can have a harder time getting traction and funding.

In my opinion, neither is better. Facebook is on one list - Viagra is on the other. While Type II might be easier to start; if you are finishing your PhD with a killer area of research, Type I might be an obvious fit. I'm now putting serious effort into seeking out fantastic opportunities, and I noticed that this framework seemed to be an interesting way of categorizing where your business falls.

Stateside!

noreply@blogger.com (Aaron Fyke) — Sun, 21 Dec 2008 18:39:00 +0000

I'm going to have to rename this blog as I am no longer "Down Under". I've had a great two years supporting the entrepreneurial and venture communities in Australia, but now I'm back home in Pasadena, California. I'm going to continue to search for world-changing businesses in the Cleantech sphere, and I'll continue to provide updates here on useful tidbits that I come across. I'll probably take a break over the holidays, but I'll be back in January. Merry Christmas all!

Short segue

noreply@blogger.com (Aaron Fyke) — Mon, 27 Oct 2008 03:17:00 +0000

I thought this was a great quote from David Landers, of Allen & Buckeridge (Sydney-based VC):

There’s no shortage of quality management talent in Australia. The problem is that they are working for Australia’s best organisations and corporations. It’s very hard to lure them into the shaky, ‘maybe if’ world of early-stage venture.

It can be very hard to find good management depth in entrepreneurial teams, but I think the quote is spot-on. It's not that Australia has a shortage of talent (at least, on a per-capita basis). What is a problem (and this is similar to what I experienced when I was living in Canada) is that the large companies (particularly resources and finance) are where good, stable careers are forged. The allure of the start-up hasn't got the same cache as in the US. The good news is that this is a classic virtuous cycle, and the Australian tech community and startup successes of late is changing that mentality.

Solar - Part 1a, Ausra switches on new power plant

noreply@blogger.com (Aaron Fyke) — Fri, 24 Oct 2008 00:50:00 +0000

Ausra switches on new power plant

From the San Jose Business Journal:

[Ausra] switched on the first solar thermal power plant built in the country in nearly 20 years today at an event in Bakersfield.

This is the first plant Ausra has constructed in the U.S. and is crucial to Ausra’s ability to raise financing beyond the venture capital it already has, its executives said. The demonstration today was important for Ausra to showcase its technology, said CEO Bob Fishman.

“We do this to prove to PG&E and the rest of the world and to customers that we’re for real and that it works and that we’re not just talking about doing solar power, we’re doing it,” Fishman said. “And to get them to accept the technology and purchase it, I think requires a demonstration that can actually do what we say it will do.”

Ausra’s 5 megawatt system is a test facility and produces enough electricity to power about 3,500 average homes. It includes 720 mirrors that are 8 by 50 feet long that direct the sun’s rays to a solar thermal tower. The heat from the sun heats water inside the tower turning it to steam and that steam. The steam runs a turbine that produces electricity. And that electricity will be sold to Pacific Gas & Electric Co.

Ausra’s investors include Kleiner Perkins Caufield and Byers and Khosla Ventures as well as KERN Partners, Generation Investment Management and Starfish Ventures.

Speaking for me personally, I'm really proud of the progress that Ausra has made in commercializing their technology. Many technology founders underestimate the difficulty of scaling up a technology, and when it comes to bending metal and pouring concrete, meeting budget and schedule can be pretty harrowing, and numerous companies have stumbled trying.

I'll return with a detailed discussion of solar next time, but I thought this announcement fit well right here.

Solar Energy - Part I

noreply@blogger.com (Aaron Fyke) — Thu, 23 Oct 2008 08:10:00 +0000

Let's start this discussion with Solar Energy. Solar is the 800lb gorilla in terms of investments right now. The last six years' of VC investments are shown on the chart below. Solar clearly dominates. I thought it would be worthwhile to use this chart as a means of prioritizing these posts - so solar clearly is first.

I actually took this from PBS here, which credits the Cleantech Group.

There are a few reasons that solar energy has attracted so much funding, but the main ones include the fact that solar is such a broad field, solar has already proven successes, and that solar has a pretty clear path to a pretty big market.

Solar Energy technology pretty much is any technology that extracts energy from the sun. This includes solar PV, concentrating solar PV, solar thermal, and concentrating solar thermal. Within each of these are multiple subsets. Solar PV consists of monocrystalline, polycrystalline, thin film, triple-junction, and dye-based cells. Concentrating solar PV can be low (3x concentration), medium (10~100x concentration) and high (~1000x concentration). Solar thermal for heating can be simple 1x roof-top water heaters. Solar thermal for utility scale power generation can be tower configurations, trough design, linear Fresnel, or dish designs.

And, it doesn't stop there. Companies which lower the amount of silicon used and companies which allow for cheaper silicon to be used have been funded. Companies which improve the production yield, or better improve manufacturing processes have been funded. Companies which lower the cost of installation, or improve the tracking of solar modules have been funded. In short, anything that can lower the cost of electricity, anywhere along the solar value chain is of interest.

Why is this? Well, basically energy is a commodity. Barring any kind of "feel good" attributes of green-energy, most people don't have any clue what energy turns their lights on. In a hyper-rational, non-subsidized world that has no clue about external factors like global warming, the day that solar is 1 cent/kWh more expensive than the cheapest form of power, nobody wants it. The day that it is 1 cent/kWh less expensive than the cheapest form of power, everyone wants it. And by "everyone", we mean all 6 billion people on the planet. This is the ultimate tipping point.

So, VCs understand that there is a big market, and this market will crack open if solar power can be made cheaply enough. A lot of the cost of solar PV modules has been their silicon content, which has driven investment into anything that will use less silicon. Concentrating solar PV assumes that by replacing the expensive silicon part within a module with cheaper lenses and mirrors, the overall cost of solar energy will drop. Thin-film solar modules attempt to drastically reduce the silicon content (or eliminate it entirely) by using different materials. Solar thermal, in whatever form, expects that, for utility-scale electricity generation, the best approach is to generate steam and spin a turbine - benefiting from a lot of the work done in the past on thermal power plants.

It's an interesting situation, and one that is encouraging. Back in my Ballard days, when fuel cells were going to change the world, Ballard's mantra was that "we'll make the fuel cells, other suppliers will solve all the other problems". Those "other problems" included hydrogen storage, hydrogen infrastructure, and vehicle manufacturing. There was a huge chicken-and-egg problem which Ballard struggled to overcome. Yet, in the solar industry, there seems to be room for many of these innovations and business models, and the single-mindedness of "decrease cost per watt" has focussed the entrepreneurial community in an extremely positive way.

Next time - more specifics on the technology and path to market.

Ocean Power and the Cleantech Universe

noreply@blogger.com (Aaron Fyke) — Fri, 17 Oct 2008 06:48:00 +0000

Well, there has been a lot of interest in the Ausra investment. Some samples of press releases are here, here, here, and here, plus others.

It's great to see the interest in solar thermal technology. However, recently I've started an exercise examining the entire spectrum of all that fits within the cleantech universe. Rob Day had an excellent article on ocean power and it got me thinking about posting my thoughts on the other technologies (wind, solar, fuel cells, biofuels, water recycling, demand management software, hybrid vehicles, batteries, large-scale energy storage, etc. etc. etc.)

So, I'll let Rob's post lead off for ocean power, and I'll be following up in subsequent posts on other technologies. Stay tuned!

Australian Solar Potential

noreply@blogger.com (Aaron Fyke) — Thu, 02 Oct 2008 00:38:00 +0000

As I mentioned on Rob Day's blog, Australia has fantastic solar resources, and the political climate has changed dramatically to be more embracing of renewable and low-carbon technology. Australia is racing towards an emission trading scheme by 2010. However, the preponderance of coal-fired power plants provides an additional opportunity for solar thermal technology. By augmenting the power production of coal-fired power plants (of which Australia has many), solar thermal technology can lower the carbon footprint of these plants in an extremely economical way.

One particular solar thermal company which found its origins in Australia has raised a $60m Series C round. It's worth checking out.

Fundraising Survival Guide

noreply@blogger.com (Aaron Fyke) — Thu, 14 Aug 2008 23:45:00 +0000

Paul Graham (of Y Combinator fame) has recently posted a great essay on how to survive the difficult task of fundraising.

I particularly like this because it talks about the pressures experienced by the entrepreneur and the behaviour witnessed by both parties - investor and entrepreneur. There are very rational reasons that lead VCs to act the way they do. One of my favourite quotes from him was the following:

Problem number 3: investors are very random. All investors, including us, are by ordinary standards incompetent. We constantly have to make decisions about things we don't understand, and more often than not we're wrong.

We don't like to call ourselves incompetent - but the truth is that being good at being a VC involves learning a lot about something new very quickly. Even with a certain degree of specialization, the entrepreneur will know more about the particular business than the VC. Of our areas of focus (life sciences, IT, and cleantech), I primarily focus on cleantech. However, within cleantech there are still a huge range of subsectors - solar, wind, fuel cells, batteries, smart meters, biofuels, grey water, black water, carbon storage, synfuels, etc. While I've had the privilege of being involved in startups in a number of these areas, if you come to me with a new material that dramatically improves the energy efficiency in some market somewhere, I'll need to understand how much value the market will place on your offering, the technical feasibility of what you've done, the difficulty it will be to ramp up manufacturing, the cost sensitivity of the inputs, the competitive landscape, etc. So, we get good at learning quickly.

However, all of this dance of information exchange can seem, to the entrepreneur, to be frustrating. The entrepreneur has been living this vision for the past "x" months/years and can't understand why everyone else doesn't see what they do. We try to recognize the situation from the entrepreneur's point of view. and this is why, if we aren't going to progress an investment, we strive to provide companies with a quick "no" rather than a slow "no", and this is why we try to give feedback where we can - although often it is difficult for us to provide feedback because the reasons for us progressing an investment can often be intertwined with other investments we are considering. Nevertheless, the road to funding can be a long one, and Paul's post I think helps chart the course.

VC Fund Economics

noreply@blogger.com (Aaron Fyke) — Mon, 04 Aug 2008 01:20:00 +0000

I wanted to link to this great post by Fred Wilson - Venture Fund Economics.

"When I write about venture fund returns, there are always comments and questions that lead me to believe that the economics of a venture fund are not well understood. And since most of the readers and commenters on this blog are people who work in the startup ecosystem, I think its important that the economics are better understood. So I am planning on some posts on this topic in the coming weeks."

I thought a number of my readers may be interested in the drivers of VC returns. Note that these returns are also the aggregate of the entire fund. Each individual company invested in needs to be able to return a much higher amount to get this overall performance. I delve into that a little bit here.

Historic Oil Prices - Peak Oil Phenomenon

noreply@blogger.com (Aaron Fyke) — Sun, 03 Aug 2008 13:52:00 +0000

I think this link from Forbes is really interesting. It shows that the oil industry had pretty spectacular prices at the beginning of the industry (1861) that were driven down by efficiency and productivity improvements. This happened remarkably quickly because by 1880, the real price of oil hit the low where it would remain for almost 100 years.

1978 was understandably a pretty shocking time - oil prices shot up to the levels only seen more than 100 years previously, near the start of the oil industry. Fortunately, prices plummeted, and we all convinced ourselves everything was going to be ok. It's clear that that was only a fifteen year reprieve. Oil prices now are once again at spectacular prices. However, this time they are higher than ever seen previously in the history of the industry.

Given the concept of peak oil, which I wholly believe - in part due to what I learned during my stint at Esso (Exxon) as a reservoir engineer, we're going to continue to see price increases until substitutes can be obtained. While oil prices are often discussed, I think this graph really puts an interesting historical perspective on things.

Rob Day, Seed Stage Capital, and Government Labs

noreply@blogger.com (Aaron Fyke) — Wed, 23 Jul 2008 13:16:00 +0000

Rob Day writes one of my favourite cleantech blogs. I think today's post is particularly compelling. In it he describes the harsh reality of why many early stage companies are too "early-stage" for an early-stage VC. This is very, very useful to understand if you are pitching to a VC, or if you are interested in government policy to support innovation. Are you listening Dr. Terry Cutler?

Chinese Soft Drink

noreply@blogger.com (Aaron Fyke) — Fri, 18 Jul 2008 06:09:00 +0000

Please do not use the Chinese soft drink argument:

"If I sell only ONE can of soft-drink to everyone in China, I'll have $1billion in revenue!"

or, its cousin:

If we get 0.05% of the marketplace, we'll make billions!

This sounds like you are being conservative, but it obscures the issue. If you are talking about home PCs and the market for operating systems, you could say, "I just need 0.05% of PCs to buy my operating system, and I'll be rich!" Ask Apple how that's working out for them competing with Microsoft. On the other hand, if you are in a field of gold bars and you've only got enough time to grab 0.05% of the field, you'll probably do great (or, at least have one shiny gold bar).

As always, the difference comes down to the actual competitive situation in the market - and THAT'S what matters. If you want to sell a compelling story, don't talk about getting miniscule slivers of the market. Instead, talk about HOW you will get the revenues you are projecting, who you will target, etc. It's much more compelling to say you'll get 80% of a certain addressable market (and list the reasons) than say you'll get .05% of a HUGE market, but not say how.

Allow time for funding - show how great you are

noreply@blogger.com (Aaron Fyke) — Mon, 07 Jul 2008 01:35:00 +0000

Back in 2005 Jeff Bussgang of Flybridge wrote a great post on why some companies get funded on his blog here.

I particularly liked item #2:

2. VCs invest in movies, not snapshots

When you see a deal as a VC, you see it at a point in time. If the entrepreneur tells you that you have only three weeks to make a decision, the decision is almost always an easy, "no". No VC nowadays likes to be rushed into a decision, and people prefer to see the company and team evolve over time (like a movie) as opposed to at a discrete point in time (like a photo snapshot). If a team walks into the first meeting and outlines what they plan on achieving in the next two months, and then walks in two months later having achieved each of the milestones plus two others, it's very impressive and gives the VC confidence that the milestones they've laid out for the next two years will be achieved as easily.

This is very relevant because some entrepreneurs don't understand the relationship-building aspect of raising capital. Raising funding is not an issue of showing up, applying for money, and getting a cheque 30 days later. We hate being rushed into a decision, because each deal is very different and we want to feel confident that we've truly seen all the issues and can feel comfortable that the company and team is one that we can place one of our very limited bets on.

Do not underestimate how long it can take to raise money. The answer is months. If you leave time to build a relationship with a VC, time to show your successes, time to let the VC fall in love with your business, then you are far more likely to raise money. If you rush the process, or make the investor feel rushed, then it is much less likely that he/she will get to that "happy comfort point" where they want to pursue a deal.

I would love it if someone came to me and said, "Here's where we are - here's what we are planning on accomplishing in the next two months. We don't need money now, but we will on this date. We'd like to introduce ourselves and start talking, and then we'll come back when we've made some more progress to show you we're serious. We can continue to talk at that time about our funding plans." Hands down, this would be more impressive than a lot of the "We need money in 3 weeks; why do you need to do due diligence? - Australian investors have no risk tolerance!" refrains that we can occasionally have the privilege to see.

A VC investment is a marriage - be sure to give time to let the relationship develop. The advantage to you (the entrepreneur) is strong as well. Over time, you get a much better look at the VC and will then be better able to decide whether you want them to be on your board for the next five years.

Happy Fourth of July

noreply@blogger.com (Aaron Fyke) — Fri, 04 Jul 2008 06:56:00 +0000

To all my readers - Happy Fourth of July!

While it is a bit weird to be celebrating a typically summer holiday in the dead of the Australian winter, it's a nice reminder of home all the same.